FAQ on reforms to temporary work legislation: Part 2 – Equal pay and equal treatment

Politicians have been applauding the reforms to the German Act on Temporary Agency Work in the media, saying that agency workers would at last get the “same wages for the same work”. They have also repeatedly stressed that free collective bargaining has been significantly improved. These prominent aspects of the reforms to the legislation on temporary agency work are set down in section 8 of the German Act on Temporary Work (the “Act”). This is a statutory provision that even experienced, knowledgeable lawyers have to study extremely carefully to be able to understand. For this reason, it is no great surprise that questions about the meaning of section 8 of the Act often arise in day-to-day business. Here are the most important answers:

When will temporary agency workers generally start to receive equal pay? Are any derogations allowed?

As has been the case up to now, agency workers are paid the same wages as employees performing comparable work at the user company from the first day of their assignment.

Only a collective bargaining agreement can open up possibilities to derogate from this standard. The requirement is that this collective bargaining agreement apply to the worker’s employment relationship due to mutually binding provisions or due to a reference to the agency worker’s employment relationship in their employment contract. Lawmakers have provided both parties to the collective agreement with two very different regulatory models for this purpose:

• Equal pay can be invalidated by a collective bargaining agreement only for a period of nine months.
• Longer derogations are only allowed if the agency worker’s pay is gradually increased within 15 months during his or her assignment at the user company to the level of the pay for comparable employees in the sector where the worker is assigned that is agreed in the collective agreement (collective equal pay).

How are these derogation periods calculated?

The duration of the period during which the principle of equal pay is derogated from starts when the temporary agency worker actually starts their assignment at the user company. It ends after either nine or 15 months, as applicable.

Previous assignments at the same user company have to be counted towards this in full, unless at least three months pass between two assignments at the same user company. However, any assignment periods before 1 April 2017 are completely disregarded.

Yet how exactly the derogation period should be calculated is still subject to debate: 

Calendar-based calculation	Quasi-Commercial calculation	Federal Employment Agency ("mixed calculation")
Calculation of complete months, regardless of how many days the month actually has. Thus in a continuous assignment from 1 April 2017 statutory equal pay has to be paid from 1 January 2018.	Each month is consistently deemed to have 30 days. So the duration of 9-month Derogation period is always 30 x 9, i.e. 270 days.  Thus in a continuous assignment from 1 April 2017, statutory equal pay applies from 27 December 2017.	Combination of the two other calculation methods:  Calendar-based calculation of months of a continuous assignment; Partial months always calculated on the Basis of 30 days.

 

No prevailing opinion in the shape of a legally watertight answer to this questions exists up to now. Anyone wanting to rule out risks should take the earliest possible time as a basis.

The agency and user company should also check existing temporary staffing agreements and make sure that future contracts already prevent interpretation problems on this matter by using clear wording.

How is the comparable pay determined and what salary components are covered?

In principle, it is the employees at the user company who carry out the same or similar work to that performed by the agency worker who are taken as the benchmark. If no comparable permanent staff member is available, it depends on what salary the agency worker would have received if they had been employed by the user company directly. To determine the pay level, all the remuneration paid during the assignment period has to be compared, including all its components.

If the permanent staff member is paid a monthly salary, the agency worker’s claim to equal treatment also covers such a monthly salary. Breaking the wages down into a (fictitious) hourly wage is not possible in this case; neither is converting an hourly wage into a monthly wage.

However, calculating the comparable pay of a permanent employees, which can consist of a wide range of salary components and extra pay and benefits, leads to considerable complications in practice. For this reason, the law establishes the following presumption: the agency worker is deemed to be treated equally in terms of pay if he is paid the same wages as those due to a comparable employee in the user company under a collective bargaining agreement. If the company does not pay wages based on a collective agreement, it is sufficient if the agency worker is paid according to the collective pay scales otherwise prevailing in the industry concerned. However, this presumption only relates to the wages, and not to the other “key working conditions” covered by the principle of equal treatment.

But in practice this presumption could often turn out to be worthless, since it can be refuted. It is already regarded as refuted if the agency worker can prove that a comparable permanent staff member receives extra pay not covered by the collective agreement.

This means that the law requires an extensive exchange of information to take place between the agency and user company regarding the working conditions and the pay applicable in the company before every assignment. This information must be part of the temporary staffing agreement as soon as the principle of equal treatment applies to the specific assignment. Thus, it may even be necessary to make subsequent changes to the contractual basis of existing relationships as soon as it is likely that the derogation period will be exceeded. Whatever the case, it is advisable to safeguard the statutory duty to point this out by a contractual right to information that is subject to a penalty.

What else is covered by the principle of equal treatment?

The principle of equal treatment in section 8 of the Act contains the principles of both equal pay and equal treatment. Hence the equal treatment by the user company should not just be reduced to the remuneration. Instead, overtime, breaks, resting periods and night work as well as holiday and days off also have to be taken into account.

In contrast, provisions on notice periods or protection from dismissal are not subject to the requirement of equal treatment.

What are the consequences of failing to comply?

If the principle of equal treatment is breached, there is, first of all, a risk of incurring the following penalties:

1. agency workers can claim from their contractual employer the difference between what they earn and the equal pay and working conditions that are not granted;
2. administrative offence: penalty of up to €500,000 for the agency;
3. the agency also risks losing its licence for hiring out temporary workers.

In addition, those responsible are even at risk of fines or prison sentences due to the failure to properly remit social security contributions.

Companies should look into what tools can be used to monitor the various periods. Companies that are subject to collective bargaining agreements also have to implement changes to existing collective agreements to reflect the new rules on the principle of equal pay. We would be happy to help you do this by using our HR Compliance Healthcheck. If you would like more information on this topic, please contact Lars Kutzner or Daniel Happ.